Category: Education: Tax Breaks Related to School

What are the differences between the American Opportunity Credit and the Lifetime Learning Credit?

For 2014 there are two tax credits available to persons who pay expenses for higher (postsecondary) education. They are:

The American Opportunity Credit, and

The Lifetime Learning Credit

For each student you can choose only one of the credits for any one year. For example, if you choose to take the American Opportunity Credit for a child on your 2014 tax return then you cannot also claim the Lifetime Learning Credit for that same child for 2014.

If you pay qualified education expenses for more than one student in the same year, you can choose to take the American Opportunity and the Lifetime Learning Credits on a per-student, per-year basis. This means that, for example, you can claim the American Opportunity Credit for one student and the Lifetime Learning Credit for another student in the same year.

American Opportunity Credit

Lifetime Learning Credit

Maximum credit

Up to $2,500 credit per eligible student

Up to $2,000 credit per return

Limit on modified adjusted gross income (MAGI)

$180,000 if married filling jointly; $90,000 if single, head of household, or qualifying widow(er)

$128,000 if married filling jointly; $64,000 if single, head of household, or qualifying widow(er)

Refundable or nonrefundable

40% of credit may be refundable

Credit limited to the amount of tax you must pay on your taxable income

Number of years of postsecondary education

Available ONLY for the first 4 years of postsecondary education

Available for all years of postsecondary education and for courses to acquire or improve job skills

Number of tax years credit available

Available ONLY for 4 tax years per eligible student

Available for an unlimited number of years

Type of degree required

Student must be pursuing an undergraduate degree or other recognized education credential

Student does not need to be pursuing a degree or other recognized education credential

Number of courses

Student must be enrolled at least half time for at least one academic period beginning during the tax year

Available for one or more courses

Felony drug conviction

No felony drug convictions on student's records

Felony drug convictions are permitted

Qualified expenses

Tuition and required enrollment fees. Course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify.

Tuition and required enrollment fees, including amounts required to be paid to the institution for course-related books, supplies, and equipment.

Payments for academic periods

Payments made in 2014 for academic periods beginning in 2014 and in the first 3 months of 2015

WHO CAN CLAIM an EDUCATION CREDIT:

You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. The credits are based on the amount of qualified education expenses paid for the student in 2014 for academic periods beginning in 2014 and in the first 3 months of 2015.

For example, if you paid $1,500 in December 2014 for qualified tuition for the spring 2015 semester beginning in January 2015, you may be able to use that $1,500 in figuring your 2014 education credit(s).